- The share of buy orders remains unchanged at 64%
- Market sentiment remains bullish at 58% (previously 59%)
- Only 15% of traders assume the Sterling will cost around 1.48 or 1.50 dollars in three months
- The nearest resistance rests at 1.5396, namely the monthly PP
- From below the Cable is supported by the 20-day SMA around 1.5381
- Upcoming events today: UK Manufacturing Production, UK NIESR GDP Estimate, US Crude Oil Inventories, BoE Governor Carney Speech
The Sterling managed to regain the bullish momentum, as it appreciated against most major peers yesterday. The British currency advanced the most against the Swiss Franc, adding 0.59%, following with a 0.40% gain versus both, the Aussie and the Kiwi. Nonetheless, the Pound suffered a 0.36% loss against the Canadian Dollar.
The UK's trade deficit with the rest of world shrank more than expected in April, which might boost the UK economy. The British economy logged a 1.2 billion pound trade gap, down from 3.1 billion pounds in March. City analysts had pencilled in a decline to just 2.6 billion pounds. Exports remained flat following the 0.3% growth in the March quarter, while imports increased 2.1%, the same rate of growth as in the three months to March.
The Office for National Statistics revised down the first-quarter trade shortfall by 219 million pounds, while trade gap for the final two quarters of 2014 remained unchanged. The UK's trade deficit in the first quarter of the year is estimated to have knocked 0.9 percentage points off the growth rate, reduced to its slowest pace in over two years. British exporters have struggled due to weak demand in the Euro zone, the UK's top trading partner, and Sterling's appreciation to its strongest on a trade-weighted basis since August 2008. Yet data offered some hope of a turnaround, with export volumes in April alone surging by 4.8%, the biggest increase since September 2014.With signs that Euro zone's growth is now picking up, prospects for UK trade and the broader economy were looking brighter.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will rather be a story of Dollar strength rather than Sterling weakness.
UK Manufacturing Production and BoE Gov Carney Speech
The two main events to influence the Cable today are the UK Manufacturing Production and BoE Governor's Speech. The Manufacturing Production is expected to have a high impact on the Sterling, as this data release is considered to be a market-mover. The factory production is likely to grow at a slower pace compared to the previous month, meaning that the Pound will most likely suffer losses, unless the data surprises with stronger figures. Furthermore, later in the day Mark Carney, head of BoE, will speak in London. The main concern over his speech today is the topic on ‘Brexit', which, if confirmed or hinted on today, will bring a lot of uncertainty in the UK and cause the Sterling to sustain more losses. Current outlook towards the GBP/USD is negative, despite the lack of important US data today.
Ross Walker, economist at Royal Bank of Scotland Group, shared his view on the short-term forecast for the Cable. He mentioned that GBP/USD has a moderate sell-off and that it could be down to high 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross also mentioned that "the main driver in many ways, as well as the main support in recent times have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD: slump inbound
The British Pound misbehaved for another day, as it appreciated against the Greenback instead of edging lower. However, volatility did stretch out to the 55-day SMA at 1.5248, but the Cable still pushed higher, until the 20-day SMA stopped the rally. Although technical indicators, which proved to be unreliable in the past two days, keep giving bearish signs, we still expect the Sterling to suffer losses. The pair approached the strong resistance cluster at 1.54, where the tide is likely to turn. The GBP/USD should retreat at least to 1.53 today.
Daily chart
The Cable declined dramatically yesterday, but in spite of piercing through the 200-hour SMA, it still pulled back up. Ultimately, the Sterling advanced against the US Dollar and edged closer to the 1.54 major level. This area will be tested today, but as it was mentioned yesterday, if the Pound fails to stabilise above 1.54, we can expect a bearish trend for at least a day or two.
Hourly chart
Bulls still prevailing over bears
Although not as strong as yesterday, but market sentiment remains bullish at 58% (previously 59%). The share of buy orders remains unchanged at 64%.
Yet for another day the traders at SAXO Group retain a negative outlook towards the Cable, as 52% of their positions are still short. OANDA traders' sentiment, however, improved a little and reached a perfect equilibrium.
Spreads (avg, pip) / Trading volume / Volatility
Only 15% of traders assume the Sterling will cost around 1.48 or 1.50 dollars in three months
The survey participants keep lifting the expectation plank higher, as the majority (59%) now assume the Sterling will cost more than 1.52 dollars after a three-month period. However, the most popular choice remains between 1.48 and 1.50, chosen by only 15% of the voters. The second place is divided between 1.50-1.52 and 1.62-1.64 price intervals, both selected by 14% of the surveyed. Meanwhile, the mean forecast for September 10 is 1.5534.
This week's participants of Dukascopy quiz continue to be bearish on pair's perspectives, as now 60% of all votes are long, while the average prediction is located on the weekly pivot point at 1.526.
A member of the Dukascopy community, who goes by the nickname ‘past', is in the minority, since he is one of the traders who expect the Sterling to Cable to appreciate by the end of the week. Past said that the GBP/USD is going to stay between support at 1.52 and resistance at 1.55. Nevertheless, another member of the community, geula4x, has a bearish perspective towards the British Pound. He commented that "GBP/USD seems bearish on the daily chart. Resistance lies around 1.5370, which is the recent daily high of June 5 and is also near the previous Candle's close, which was an inverse daily candle with a long wick at top." Geula4x does not expect the Pound to fall below the 1.5088 level, since it held the price on May 4 and 5, but a retest is possible.